SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q
(Mark One)
[X]            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
               OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended    September 30, 1996
                               ----------------------

                                       OR

[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR
                15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to _____________

                         Commission File Number 0-11889

                           FIRST FINANCIAL CORPORATION
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

         Wisconsin                                              39-1471963
 -----------------------------                               ------------------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                               Identification No.)

                1305 Main Street, Stevens Point, Wisconsin 54481
                ------------------------------------------------
                     (Address of principal executive office)

                                 (715) 341-0400
               --------------------------------------------------
              (Registrant's telephone number, including area code)

               ---------------------------------------------------
   (Former name, address and former fiscal year, if changed since last report)

        Indicate by check mark whether the  registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

Yes   X        No
    ----           ----

        Indicate  the  number  of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date:

Common Stock, par value $1.00 per share             29,932,524 Shares
---------------------------------------          -----------------------
               Class                         Outstanding at October 31, 1996


<PAGE>




                           FIRST FINANCIAL CORPORATION

                                 Form 10-Q Index




Part I -       Financial Information

               Consolidated Balance Sheets as of September 30, 1996
                  (Unaudited) and December 31, 1995

               Unaudited Consolidated Statements of Income for
                  the Three Months and Nine Months Ended September 30,
                  1996 and 1995

               Unaudited Consolidated Statement of Changes In
                  Stockholders' Equity for the Nine Months Ended
                  September 30, 1996

               Unaudited Consolidated Statements of Cash Flows
                  for the Nine Months Ended September 30, 1996 and
                  1995

               Notes to Unaudited Consolidated Financial Statements

               Management's Discussion and Analysis:
                  Comparison of the Consolidated Balance Sheets
                  at September 30, 1996 (Unaudited) and December 31,
                  1995

                  Comparison of the Unaudited Consolidated Statements
                  of Income for the Three Months and Nine Months Ended
                  September 30, 1996 and 1995


Part II -      Other Information

               Item 6.  Exhibits and Reports on Form 8-K

Signatures

Exhibits

                                       -1-

<PAGE>



                           FIRST FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>


                                                       September 30,           December 31,
                                                            1996                   1995
                                                            ----                   ----
                                                         (Unaudited)
                    ASSETS                                         (In thousands)
<S>                                                     <C>                    <C>
Cash                                                    $   99,739             $  123,379
Federal funds sold                                          55,031                 34,929
Interest-earning deposits                                   70,692                 13,801
                                                        ----------             ----------
     Cash and cash equivalents                             225,462                172,109

Securities available for sale (at fair value):
     Investment securities                                 152,821                 80,999
     Mortgage-related securities                           839,745                571,293
Securities held to maturity (at amortized cost):
     Investment securities (fair
       value of $66,240,000--1996
       and $119,063,000--1995)                              67,081                119,426
     Mortgage-related securities
       (fair value of $613,350,000
       --1996 and $691,060,000--1995)                      622,628                699,468
Loans receivable:
     Held for sale                                          12,631                 26,651
     Held for investment                                 3,468,859              3,590,149
Foreclosed properties and repossessed assets                 3,603                  3,379
Real estate held for investment or sale                      8,690                  8,289
Office properties and equipment, at cost                    50,483                 51,124
Intangible assets, less accumulated amortization            13,641                 21,481
Other assets                                               129,968                126,740
                                                        ----------             ----------
                                                        $5,595,612             $5,471,108
                                                        ==========             ==========
</TABLE>

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S>                                                     <C>                    <C>
Deposits:
     Checking                                           $  432,554             $  473,203
     Money market accounts                                 389,115                310,545
     Passbook                                              667,428                687,960
     Certificates of deposit                             2,875,434              2,952,817
                                                        ----------             ----------
       Total deposits                                    4,364,531              4,424,525

Borrowings                                                 708,820                570,508
Advance payments by borrowers
     for taxes and insurance                                54,347                 13,206
Other liabilities                                           66,812                 77,952
                                                        ----------             ----------
        Total liabilities                                5,194,510              5,086,191
                                                        ----------             ----------

Stockholders' equity:
     Serial preferred stock, $1 par
       value, 3,000,000 shares
       authorized; none outstanding
     Common stock, $1 par value,
       75,000,000 shares authorized;
       shares issued and outstanding:
       29,915,306-September 30, 1996;
       29,676,365-December 31, 1995                         29,915                 29,676
     Additional paid-in capital                             50,958                 49,756
     Net unrealized loss on
       securities available for sale                        (8,354)                (6,021)
     Common stock purchased by
       employee benefit plan                                  (271)                  (271)
     Retained earnings (substantially restricted)          328,854                311,777
                                                        ----------             ----------
       Total stockholders' equity                          401,102                384,917
                                                        ----------             ----------
                                                        $5,595,612             $5,471,108
                                                        ==========             ==========
</TABLE>

           See notes to unaudited consolidated financial statements.

                                       -2-

<PAGE>
                           FIRST FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                              Three Months Ended                     Nine Months Ended
                                                                 September 30,                         September 30,
                                                                1996            1995                  1996            1995
                                                             ---------        --------             ----------       ------
                                                  (In thousands, except per share amounts)
<S>                                                          <C>              <C>                   <C>             <C>
Interest income:
   Mortgage loans                                            $ 42,979         $ 45,711              $132,264        $137,161
   Other loans                                                 32,238           30,912                95,271          88,719
   Mortgage-related securities                                 27,180           24,635                69,667          75,751
   Investments                                                  4,660            3,895                15,416          11,058
                                                             --------         --------              --------        --------
     Total interest income                                    107,057          105,153               312,618         312,689
Interest expense:
   Deposits                                                    49,302           50,939               149,347         146,055
   Borrowings                                                   9,443            8,525                23,263          29,240
                                                             --------         --------              --------        --------
     Total interest expense                                    58,745           59,464               172,610         175,295
                                                             --------         --------              --------        --------
     Net interest income                                       48,312           45,689               140,008         137,394
Provision for losses on loans                                   2,850            2,873                 6,930           7,065
                                                             --------         --------              --------        --------
                                                               45,462           42,816               133,078         130,329
Non-interest income:
   Deposit account service fees                                 3,622            3,195                10,098           8,789
   Loan fees and service charges                                3,146            2,943                 8,895           8,201
   Insurance and brokerage commissions                          1,844            1,536                 5,455           5,322
   Service fees on loans sold                                   1,583            1,873                 4,680           5,629
   Gain on disposition of loans and
     mortgage-related securities, net                           1,347            1,365                 2,055           1,647
   Net gain on sales of securities                                 52            1,173                   456           1,184
   Other                                                          776              677                 2,366           2,612
                                                             --------         --------              --------        --------
     Total non-interest income                                 12,370           12,762                34,005          33,384
                                                             --------         --------              --------        --------
     Operating income                                          57,832           55,578               167,083         163,713
Non-interest expense:
   Compensation, payroll taxes
     and benefits                                              12,456           11,172                35,722          35,309
   Federal deposit insurance premiums                           2,572            2,517                 7,675           7,575
   SAIF recapitalization charge                                28,767               --                28,767              --
   Occupancy                                                    2,378            2,285                 7,210           6,815
   Data processing                                              1,924            1,776                 5,674           5,389
   Loan expenses                                                1,770            1,543                 5,374           4,545
   Telephone and postage                                        1,650            1,555                 4,935           4,855
   Marketing                                                    1,653            1,245                 4,923           5,422
   Furniture and equipment                                      1,228            1,356                 3,842           4,253
   Amortization of intangible assets                            1,286            1,312                 3,815           3,934
   Goodwill writedown                                           4,238               --                 4,238              --
   Net cost of foreclosed properties                              191               22                    68              15
   Acquisition-related costs                                       --               --                    --           6,458
   Other                                                        2,958            2,987                 8,516           8,701
                                                             --------         --------              --------        --------
     Total non-interest expense                                63,071           27,770               120,759          93,271
                                                             --------         --------              --------        --------
Income (loss) before income taxes and
   extraordinary item                                          (5,239)          27,808                46,324          70,442
Income taxes (credit)                                          (1,542)          10,015                15,106          25,517
                                                             --------         --------              --------        --------
Income (loss) before extraordinary item                        (3,697)          17,793                31,218          44,925
Extraordinary item                                                 --               --                  (686)             --
                                                             --------         --------              --------        --------
Net income (loss)                                            $ (3,697)        $ 17,793              $ 30,532        $ 44,925
                                                             ========         ========              ========        ========
Earnings per share:
   Primary:
     Income (loss) before extra-
       ordinary item                                         $  (0.12)        $   0.59              $   1.02        $   1.49
     Extraordinary item                                            --               --                 (0.02)             --
                                                             --------         --------              --------        --------
     Net income (loss)                                       $  (0.12)        $   0.59              $   1.00        $   1.49
                                                             ========         ========              ========        ========
  Fully diluted:
     Income (loss) before extra-
       ordinary item                                         $  (0.12)        $   0.59              $   1.02        $   1.48
     Extraordinary item                                            --               --                 (0.02)             --
                                                             --------         --------              --------        --------
     Net income (loss)                                       $  (0.12)        $   0.59              $   1.00        $   1.48
                                                             ========         ========              ========        ========
Cash dividends per share                                     $   0.15         $   0.12              $   0.45        $   0.36
                                                             ========         ========              ========        ========
</TABLE>

           See notes to unaudited consolidated financial statements.

                                       -3-
<PAGE>
                           FIRST FINANCIAL CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Unaudited)



<TABLE>
<CAPTION>

                                                             Net
                                                          Unrealized
                                      Common                Holding                Common
                                    Stock and               Loss on                Stock
                                    Additional            Securities             Purchased
                                      Paid-In              Available              By ESOP           Retained          Stockholders'
                                     Capital               For Sale                 Plan            Earnings             Equity
                                     -------               --------                 ----            --------             ------
                                                              (In Thousands)

<S>                                 <C>                   <C>                    <C>                <C>               <C>
Balances at
  December 31, 1995                 $   79,432            $   (6,021)            $    (271)         $ 311,777         $   384,917

Net income for the
  nine months ended
  September 30, 1996                                                                                   30,532              30,532

Cash dividends paid
  ($0.45 per share)                                                                                   (13,455)            (13,455)

Exercise of stock
  options                                1,441                                                                              1,441

Change in net unrealized
  holding loss on
  securities available
  for sale, net of tax                                        (2,333)                                                      (2,333)
                                    ----------            ----------             ---------          ---------         -----------

Balances at
  September 30, 1996                $   80,873            $   (8,354)            $    (271)         $ 328,854         $   401,102
                                    ==========            ==========             =========          =========         ===========

</TABLE>

           See notes to unaudited consolidated financial statements.


                                       -4-

<PAGE>



                           FIRST FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                    Nine Months Ended
                                                                                                        September 30,
                                                                                                   1996                 1995
                                                                                                ----------           -------
<S>                                                                                            <C>               <C>
OPERATING ACTIVITIES                                                                                   (In thousands)

   Net income                                                                                   $  30,532            $  44,925
   Adjustments to reconcile net income to net cash provided
     by operating activities:
      Decrease (increase) in accrued interest on loans                                                961               (3,446)
      Increase in accrued interest on deposits                                                      1,508               10,369
      Loans originated for sale                                                                  (174,743)            (142,577)
      Proceeds from sales of loans held for sale                                                  271,306              142,861
      Provision for depreciation                                                                    4,465                4,321
      Provision for losses on loans                                                                 6,930                7,065
      Provision for losses on real estate and other assets                                           (342)                 659
      Amortization of cost in excess of net assets of
        acquired businesses                                                                         2,959                  624
      Amortization of core deposit intangibles                                                      5,094                3,310
      Amortization of mortgage servicing rights                                                     1,369                  710
      Net gain on sales of loans, securities and assets                                            (2,494)              (2,867)
      Other-net                                                                                    17,145                5,836
                                                                                                ---------            ---------
     Net cash provided by operating activities                                                    164,690               71,790

INVESTING ACTIVITIES

   Proceeds from sales of investment securities available for sale                                  2,564               18,759
   Proceeds from sales of mortgage-related securities available
     for sale                                                                                     359,180                   --
   Proceeds from maturities of investment securities held
     to maturity                                                                                   81,787               41,695
   Proceeds from maturities of investment securities available for
     sale                                                                                           6,860                9,351
   Purchases of investment securities held to maturity                                            (29,849)             (34,655)
   Purchases of investment securities available for sale                                          (82,884)             (15,770)
   Purchases of mortgage-related securities available for sale                                   (551,363)                  --
   Principal payments received on mortgage-related securities                                     152,708              192,719
   Principal received on loans receivable                                                         512,326              401,879
   Loans originated for portfolio                                                                (635,527)            (536,651)
   Additions to office properties and equipment                                                    (3,233)              (2,722)
   Proceeds from sales of foreclosed properties and
     repossessed assets                                                                             5,768                5,341
   Proceeds from sales of real estate held for investment                                              81                   --
                                                                                                ---------            ---------
     Net cash provided by (used in) investing activities                                         (181,582)              79,946

FINANCING ACTIVITIES

   Net increase (decrease) in deposits                                                            (61,502)              48,769
   Net increase in advance payments by borrowers for
     taxes and insurance                                                                           41,141               46,292
   Funding of official checks for borrower tax escrows                                            (35,692)             (34,953)
   Net increase in short-term borrowings                                                          145,763               33,582
   Proceeds from borrowings                                                                     1,227,300              814,223
   Repayments of borrowings                                                                    (1,234,751)          (1,028,730)
   Proceeds from exercise of stock options                                                          1,441                2,693
   Proceeds from vesting of employee benefit plans                                                     --                1,139
   Payments of cash dividends to stockholders                                                     (13,455)             (10,595)
                                                                                                ---------            ---------
     Net cash provided by (used in) financing activities                                           70,245             (127,580)
                                                                                                ---------            ---------

Increase in cash and cash equivalents                                                              53,353               24,156
Cash and cash equivalents at beginning of period                                                  172,109              118,978
                                                                                                ---------            ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                      $ 225,462            $ 143,134
                                                                                                =========            =========

</TABLE>

           See notes to unaudited consolidated financial statements.

                                       -5-

<PAGE>



                           FIRST FINANCIAL CORPORATION

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - PRINCIPLES OF CONSOLIDATION

        The unaudited consolidated financial statements include the accounts and
results  of  operations  of  First   Financial   Corporation   ("FFC")  and  its
wholly-owned   subsidiary,   First  Financial  Bank  ("FF  Bank").   Significant
intercompany  accounts and transactions  have been eliminated in  consolidation.
FFC uses the calendar year as its fiscal year.

        The  financial  statements  reflect  adjustments,  all of which are of a
normal recurring nature, and in the opinion of management,  necessary for a fair
statement  of the results  for the  interim  periods,  and are  presented  on an
unaudited  basis.  In  preparing  the  consolidated   financial   statements  in
conformity with generally accepted accounting principles, management is required
to make  estimates  and  assumptions  that  affect the  amounts  reported in the
consolidated  financial  statements and accompanying notes. Actual results could
differ from those estimates.  The operating results for the first nine months of
1996 are not necessarily indicative of the results which may be expected for the
entire 1996 fiscal year. The December 31, 1995 balance sheet included  herein is
derived from the consolidated financial statements included in FFC's 1995 Annual
Report  to  Shareholders.  The  accompanying  unaudited  consolidated  financial
statements and related notes should be read in conjunction with the consolidated
financial  statements  and related notes included in FFC's 1995 Annual Report to
Shareholders. See Note B for information relative to business combinations.


NOTE B - FIRST FINANCIAL CORPORATION

        At  September  30,  1996,  FFC  conducted  business as a  nondiversified
unitary  thrift holding  company and its principal  asset was all of the capital
stock of FF Bank. The primary  business of FFC is the business of FF Bank. FFC's
activities are currently comprised of providing limited administrative  services
to FF Bank.

        On February 28, 1995, FFC acquired FirstRock Bancorp, Inc. ("FirstRock")
of Rockford,  Illinois.  Upon  closing,  FirstRock's  subsidiary,  First Federal
Savings Bank, FSB ("First Federal") was merged into FF Bank with First Federal's
six offices now operating as branch banking  offices of FF Bank. The transaction
was  accounted  for  as  a  pooling-of-interests  and,  accordingly,   financial
statements  for all periods  presented have been restated to include the results
of FirstRock.








                                       -6-

<PAGE>





        On February 28, 1995 FirstRock had assets  (unaudited)  of  $376,473,000
and shareholders'  equity  (unaudited) of $48,430,000.  The total income and net
income  (loss) for the  two-month  period ended  February 28, 1995  (unaudited),
which reflects the pre-merger  results of FFC and FirstRock that are included in
the first nine months of 1995 results of operations, are as follows:


                                                      Net
                           Total                    Income
                           Income                   (Loss)
                           ------                   ------

        FFC               $69,579                  $ 9,348
        FirstRock           5,383                   (3,091)
                          -------                  -------

                          $74,962                  $ 6,257
                          =======                  =======



         As a result of the FirstRock  acquisition,  FFC and FirstRock  incurred
expenses i) in conjunction  with the acquisition  itself and ii) relative to the
reorganization  of  FirstRock's   operations  following  the  acquisition.   The
acquisition/transaction  costs and charges  aggregated $6.5 million on a pre-tax
basis and $4.0  million on an  after-tax  basis,  or $0.14 per share  during the
first quarter of 1995.

NOTE C - EARNINGS PER SHARE

        Primary  and fully  diluted  earnings  per share for the  periods  ended
September 30, 1996 and 1995 have been determined  based on the weighted  average
number of common  shares  outstanding  during each period and common  equivalent
shares, using the treasury share method,  outstanding at the end of each period.
FFC's common  stock  equivalents  consist  entirely of stock  options.  Weighted
average  common shares have been  adjusted for all periods  presented to reflect
the  restatement  for  FirstRock  shares.  See  Exhibit 11 to this  Report for a
detailed computation of earnings per share.

NOTE D - CONTINGENT LIABILITIES

        FF Bank has previously  entered into agreements  whereby,  for an annual
fee,  letters of credit are issued by FF Bank in connection with the issuance of
industrial  development  revenue  bonds.  At  September  30,  1996,  bond issues
totaling $7.1 million are supported by such letters of credit.  At September 30,
1996,  each of the  outstanding  bonds for which FF Bank has  issued  letters of
credit is current with regard to debt service payments.

NOTE E - DIVIDENDS PAID OR DECLARED TO STOCKHOLDERS

        The Board of Directors  of FFC on August 21, 1996,  declared a $0.15 per
share  quarterly cash dividend  payable on September 30, 1996 to shareholders of
record of FFC common stock on September 13, 1996.


                                       -7-

<PAGE>



NOTE F - REGULATORY CAPITAL REQUIREMENTS

        Current  Office  of  Thrift   Supervision   ("OTS")  regulatory  capital
requirements  for  federally-insured  thrift  institutions  include  a  tangible
capital to tangible assets ratio, a core leverage  capital to adjusted  tangible
assets ratio and a risk-based capital measurement based upon assets weighted for
their inherent risk.

       As of September 30, 1996,  FF Bank exceeded all OTS capital  requirements
as displayed below:



                                               Required                 Actual
                                                 OTS                    FF Bank
                                                Ratio                    Ratio
                                                -----                    -----

Tangible capital                                 1.50%                    6.81%
Core leverage capital                            3.00                     7.02
Risk-based capital                               8.00                    15.09



OTS has adopted a final rule, effective March 4, 1994,  disallowing any new core
deposit intangibles,  acquired after the rule's effective date, from counting as
regulatory  capital.  Core deposit  intangibles  acquired prior to the effective
date have been  grandfathered  for purposes of this rule. At September 30, 1996,
FFC had core  deposit  intangibles  of $12.2  million,  all of which  have  been
grandfathered  from  this OTS  rule.  The OTS has  added an  interest-rate  risk
calculation such that an institution with a measured interest-rate risk exposure
greater than specified levels must deduct an  interest-rate  risk component when
calculating the OTS risk-based capital requirement. Final implementation of this
rule was pending at September  30,  1996.  The OTS also has proposed to increase
the minimum  required  core capital  ratio from the current  3.00% to a range of
4.00% to 5.00% for all but the most healthy financial  institutions.  Management
of FFC and FF Bank do not  believe  these  rules will  significantly  impact the
capital  requirements of FF Bank or cause FF Bank to fail to meet its regulatory
capital requirements.

NOTE G - EXTRAORDINARY ITEM

       In January  1996,  FFC redeemed all of its  outstanding  8%  Subordinated
Notes  due  November  1999  (which   aggregated   $54,925,000  at  the  date  of
redemption). The net after-tax cost associated with this redemption, $686,000 or
$0.02 per  share,  has been  reported  as an  extraordinary  charge in the first
quarter of 1996. This transaction was funded principally through a dividend from
FF Bank.

                                       -8-

<PAGE>



NOTE H - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION


                                                                 For The
                                                             Nine Months Ended
                                                                September 30,
                                                           --------------------
                                                             1996          1995
                                                           --------      ------
                                                               (In thousands)

Supplemental disclosure of cash flow information:
   Cash paid or credited to accounts during
      period for:
     Interest on deposits and borrowings                   $170,906    $165,325
     Income taxes                                            25,967      24,647
   Non-cash investing activities:
     Mortgage loans transferred to held for sale
      portfolio                                              70,502       7,498
     Loans receivable transferred to foreclosed
      properties                                              5,972       4,757
     Increase in net unrealized holding loss
      on securities available for sale                       (2,333)       (440)
     Mortgage loans securitized and transferred to
      mortgage-related securities available for sale        161,087          --




NOTE I - SUBSEQUENT EVENT

       On October 16, 1996 FFC's Board of Directors  approved the  repurchase of
up to 1,500,000  shares,  or approximately  5%, of its outstanding  common stock
from  time to time  over  the next  six  months  in open  market  and  privately
negotiated  transactions.  Shares  of  common  stock  acquired  pursuant  to the
repurchase  program shall be retained as treasury  shares for general  corporate
purposes.


                                       -9-

<PAGE>



                      MANAGEMENT'S DISCUSSION AND ANALYSIS


                  COMPARISON OF THE CONSOLIDATED BALANCE SHEETS
            AT SEPTEMBER 30, 1996 (UNAUDITED) WITH DECEMBER 31, 1995

General:

          Total assets  increased to $5.596  billion at September  30, 1996 from
$5.471  billion at December 31, 1995.  Deposits  decreased to $4.365  billion at
September  30,  1996 from  $4.425  billion at  year-end  1995  while  borrowings
increased  to $708.8  million  from $570.5  million  during the same time frame.
Advance payments by borrowers for taxes and insurance increased by $41.1 million
between December 31, 1995 and September 30, 1996 and other liabilities decreased
$11.1 million from December 31, 1995 to September 30, 1996. Stockholders' equity
at September  30, 1996 was $401.1  million,  up from $384.9  million at year-end
1995.

Liquidity and Capital Resources:

          At September 30, 1996,  total  consolidated  liquidity,  consisting of
cash, cash  equivalents,  and investment  securities  represented 7.96% of FFC's
total assets  compared with 6.81% at December 31, 1995. FF Bank is in compliance
with requirements  relating to minimum levels of liquid assets as defined by OTS
regulations.  The ongoing  management  of liquid  assets is an integral  part of
FFC's  overall  asset/liability  management  program as  described  below  under
"Asset/Liability  Management." The cash and securities  portfolios are among the
most  flexible  assets  available  for shorter term  liability  matching.  Total
consolidated  liquidity at  September  30, 1996  increased  by $72.8  million as
compared  to  December  31,  1995  liquidity  as a result  of the net  effect of
significant  changes in various  categories of assets and liabilities during the
nine-month  interim  period.  Some of the  more  significant  changes  in  these
categories, including liquid assets, are summarized as follows:

<TABLE>
<CAPTION>

   Consolidated                          Balance                                    Balance
   Balance Sheet                       December 31,           Increases           September 30,
  Classification                           1995              (Decreases)              1996
-------------------                    ------------          -----------          --------
                                                             (In thousands)

<S>                                    <C>                    <C>                 <C>
Cash and cash equivalents              $  172,109             $  53,353           $  225,462
Securities available for
 sale:
  Investment securities                    80,999                71,822              152,821
  Mortgage-related
   securities                             571,293               268,452              839,745
Securities held to
 maturity:
  Investment securities                   119,426               (52,345)              67,081
  Mortgage-related
   securities                             699,468               (76,840)             622,628
Loans receivable, in-
 cluding loans held
 for sale                               3,616,800              (135,310)           3,481,490
Office properties                          51,124                  (641)              50,483
Intangible assets                          21,481                (7,840)              13,641

                                      -10-

<PAGE>



Deposits                                4,424,525               (59,994)           4,364,531
Borrowings                                570,508               138,312              708,820
Advance payments by
 borrowers for taxes
 and insurance                             13,206                41,141               54,347
Other liabilities                          77,952               (11,140)              66,812
Stockholders' equity                      384,917                16,185              401,102
</TABLE>


        Changes  noted in the  "Increases  (Decreases)"  column of the preceding
table are discussed below in the related  sections of  "Management's  Discussion
and Analysis."

        Management  believes  liquidity  levels  are  proper  and that  adequate
capital and borrowings are available  through the capital  markets,  the Federal
Home Loan Bank  ("FHLB")  and other  sources.  For a  discussion  of  regulatory
capital  requirements,  see  Note  F to  the  unaudited  consolidated  financial
statements.

        On an  unconsolidated  basis,  FFC had cash of $5.5 million.  During the
first quarter of 1996, FFC redeemed its subordinated  debt of $54.9 million (See
Note  G to the  unaudited  consolidated  financial  statements).  The  principal
ongoing source of funds for FFC is primarily dividends from FF Bank.  Applicable
rules and regulations of the OTS impose limitations on capital  distributions by
savings institutions such as FF Bank. Savings institutions such as FF Bank which
have capital in excess of all capital  requirements  before and after a proposed
capital  distribution  are  permitted,  after giving prior notice to the OTS, to
make capital  distributions during a calendar year up to the greater of (i) 100%
of net  income to date  during the  calendar  year,  plus the amount  that would
reduce by 1/2 its "surplus  capital  ratio" (the excess capital over its capital
requirements)  at the  beginning  of the calendar  year,  or (ii) 75% of its net
income over the most recent four-quarter period.

Total Loans Receivable and Held for Sale:

        Total loans,  including  loans held for sale,  decreased  $135.3 million
from $3.617  billion at December  31, 1995 to $3.481  billion at  September  30,
1996. Total loans are summarized below as of the dates indicated.
<TABLE>
<CAPTION>

                                                      September 30,          December 31,          Increase
                                                          1996                   1995             (Decrease)
                                                      -------------          ------------         ----------
                                                                           (In thousands)
<S>                                                   <C>                    <C>                  <C>       
Real estate loans:
    One-to-four family                                $ 1,885,612            $2,038,103           $(152,491)
    Multi-family                                          230,200               220,772               9,428
    Commercial and non-residential                        173,105               153,173              19,932
                                                       ----------             ---------           ---------
       Total real estate loans                          2,288,917             2,412,048            (123,131)

Other loans:
    Consumer                                              409,329               362,659              46,670
    Home equity                                           296,324               284,700              11,624
    Education                                             263,543               240,650              22,893
    Credit cards                                          168,423               214,107             (45,684)
    Manufactured housing                                  112,286               139,385             (27,099)
    Business                                               12,220                17,198              (4,978)

Less net items to loans receivable                        (69,552)              (53,947)            (15,605)
                                                       ----------            ----------           ---------

Total loans (including loans held
    for sale)                                          $3,481,490            $3,616,800           $(135,310)
                                                       ==========            ==========           =========

</TABLE>

                                      -11-

<PAGE>



          The  decrease  in total  loans  during the first  nine  months of 1996
included a $123.1  million  decrease in real estate  loans.  This  decrease  was
primarily  the result of the net  effect of i)  originations  of $561.0  million
offset by ii) repayments of $326.6  million,  iii) loan sales of $211.3 million,
and iv) the securitization of $161.1 million of seasoned  fixed-term  fixed-rate
mortgage loans transferred to the mortgage-related  securities portfolio.  For a
further discussion of loan origination activity, see "Loan Originations".

          Consumer loan  balances  increased  $46.7 million and education  loans
increased  $22.9 million in 1996 as originations  outpaced  repayments for these
product lines.  Consumer loan balances were positively  impacted by the purchase
of a $7.3 million  automobile loan portfolio as well as by the continued success
of a second mortgage loan product.  Manufactured housing loan balances decreased
$27.1 million as FFC had  previously  ceased  originating  manufactured  housing
loans and the portfolio continues to make scheduled repayments.

          Credit  card loan  balances  decreased  $45.7  million  in 1996 as the
result of the sale of a $47.9 million affinity group  portfolio.  Offsetting the
sale is a $2.2 million  increase in credit card  balances at September  30, 1996
over traditionally high calendar year-end balances.

          Home equity loan balances increased $11.6 million to $296.3 million at
September 30, 1996 due to a successful loan promotion and the  stabilization  of
record repayment levels experienced in early 1996.

          Mortgage  loans held for sale were $12.6 million at September 30, 1996
as compared to $26.7 million at the end of 1995.  Off-balance  sheet commitments
to extend  credit and to sell  mortgage  loans  totaled  $40.0 million and $16.8
million,  respectively,  at September  30, 1996 as compared to $40.2 million and
$43.3 million,  respectively, at December 31, 1995. During the nine months ended
September 30, 1996,  market  interest  rates moved  slightly lower than year-end
1995  rates  early in 1996 but then  trended  upward  from  year-end  levels and
stabilized  during the third quarter of 1996. The fair value of on-balance sheet
mortgage loans held for sale and off-balance  sheet commitments to originate and
sell  mortgage  loans can vary  substantially  depending  upon the  movement  of
interest  rates.  Management  utilizes  various methods to insulate FFC from the
effects  of  such  interest-rate  movements,  principally  by  securing  forward
commitments to sell loans in the secondary mortgage market.  However,  there can
be no assurance that these means will be totally  effective.  Future  operations
may be affected by the above-discussed risk factors.

Mortgage-Related Securities:

          The  mortgage-related  securities  ("MBS") portfolio  increased $191.6
million during the nine months ended September 30, 1996 primarily as a result of
the net effect of i) the  purchase  of $551.4  million of  adjustable  rate U.S.
Government  agency-backed  MBSs  and ii) the  aforementioned  securitization  of
$161.1 million of mortgage loans transferred to the mortgage-related  securities
portfolio  offset by iii) sales of MBSs having an aggregate  par value of $358.6
million and iv) principal  repayments of $152.7 million. At the end of the third
quarter,  FF Bank had commitments to purchase  adjustable  rate U.S.  Government
agency-backed  MBSs  having an  aggregate  par value of  $145.0  million.  These
commitments  were undertaken to cover expected cash flows as well as to reinvest
the proceeds from the credit card sale noted above.


                                      -12-

<PAGE>



          The  following  tables  set  forth,  at  the  dates   indicated,   the
composition of the MBS portfolio  including issuer,  security type and financial
statement   carrying   value   as   well   as   classification    according   to
available-for-sale or held-to-maturity status:
<TABLE>
<CAPTION>

                                                                             Carrying Value At
                                                                        September 30,        December 31,
                                                                           1996                 1995
                                                                        -----------          -------
                                                                               (In thousands)
<S>                                                                      <C>                  <C>       
Issuer/Security Type
  U.S. Government agencies:
     Mortgage-backed certificates                                        $  857,020           $  349,216
     Collateralized mortgage
      obligations ("CMOs")                                                  284,349              342,190
                                                                         ----------           ----------
       Total agencies                                                     1,141,369              691,406
                                                                         ----------           ----------

  Private issuers:
     Mortgage-backed certificates
       Senior position                                                      304,573              480,839
       Mezzanine position                                                    15,968               97,904
     CMOs                                                                       463                  612
                                                                         ----------           ----------
       Total private issuers                                                321,004              579,355
                                                                         ----------           ----------

       Totals                                                            $1,462,373           $1,270,761
                                                                         ==========           ==========

Financial Statement Classification
  Available-for-sale portfolio                                           $  839,745           $  571,293
  Held-to-maturity portfolio                                                622,628              699,468
                                                                         ----------           ----------

       Total carrying value                                              $1,462,373           $1,270,761
                                                                         ==========           ==========
</TABLE>


     FFC's investment in  private-issuer,  i.e.,  non-agency,  MBSs has declined
significantly in 1994, 1995 and 1996 due to prepayments and sales. The following
table  sets  forth the  carrying  value of FFC's  private-issuer  MBSs as of the
indicated dates:
<TABLE>
<CAPTION>

                                        At
                                   September 30,                            At December 31,
                                       1996                   1995               1994                 1993
                                   -------------            --------           --------              ------
                                                                    (In thousands)
<S>                                  <C>                  <C>                 <C>                  <C>       
Private issuers:
  Senior position                    $  304,573           $  480,839          $  649,294           $  912,461
  Mezzanine position                     15,968               97,904             107,721              220,576
  CMOs                                      463                  612               2,115                3,205
                                     ----------           ----------          ----------           ----------
     Total                           $  321,004           $  579,355          $  759,130           $1,136,242
                                     ==========           ==========          ==========           ==========

Private issue
  portfolio as
  % of total MBSs                          22.0%                45.6%               52.2%                85.8%
                                     ==========           ==========          ==========           ==========
</TABLE>



     During the first nine months of 1996,  FFC reduced its  holdings of private
issue MBSs by $258.4  million  from $579.4  million at the end of 1995 to $321.0
million at September 30, 1996. This decrease included an $81.9 million reduction
in mezzanine position MBSs,  primarily due to the disposition of such securities
having  an  aggregate  carrying  value of $81.2  million  at a net loss of $15.9
million. (See "Non-Performing MBSs").

     FFC's  portfolio of MBSs totaled  approximately  $1.46 billion at September
30, 1996 and, except for those securities  discussed in  "Non-Performing  MBSs,"
were  either i) U.S.  Government  agency-backed  or ii)  rated at a  minimum  of
investment  grade  quality  by at least one  nationally  recognized  independent
rating agency.

                                      -13-

<PAGE>




Loan Delinquencies:

     FFC monitors  the  delinquency  status of its loan  portfolio on a constant
basis and initiates  borrower  contact and additional  collection  procedures as
necessary at an early date.  Delinquencies  and past due loans are,  however,  a
normal part of the lending function.  When the delinquency reaches the status of
greater  than 90 days,  the loans are placed on a  non-accrual  basis until such
time as the  delinquency is reduced again to 90 days or less. Non- accrual loans
are presented separately in the following section. Loan delinquencies of 90 days
or less, for the dates indicated, are summarized in the following chart:
<TABLE>
<CAPTION>


                                                                September 30,    December 31,
                                                                    1996             1995
                                                                -------------    --------
                                                                        (In thousands)
<S>                                                                 <C>                   <C>    
Loans Delinquent 30-59 Days
  Residential real estate                                           $ 6,114               $ 7,945
  Manufactured housing                                                1,812                 2,888
  Credit card                                                         1,805                 2,555
  Commercial real estate                                                277                   303
  Consumer, student and other                                         9,705                 9,519
                                                                    -------               -------
                                                                    $19,713               $23,210
                                                                    =======               =======
Loans Delinquent 60-90 Days
  Residential real estate                                           $ 1,715               $ 1,193
  Manufactured housing                                                  709                   766
  Credit card                                                         1,033                 1,315
  Commercial real estate                                                 --                   606
  Consumer, student and other                                        12,950                 9,734
                                                                    -------               -------
                                                                    $16,407               $13,614
                                                                    =======               =======

Total Loans Delinquent 30-90 Days
  Residential real estate                                           $ 7,829               $ 9,138
  Manufactured housing                                                2,521                 3,654
  Credit card                                                         2,838                 3,870
  Commercial real estate                                                277                   909
  Consumer, student and other                                        22,655                19,253
                                                                    -------               -------
                                                                    $36,120               $36,824
                                                                    =======               =======
</TABLE>


        At September 30, 1996, the 30-90 day delinquencies decreased $700,000 to
$36.1 million from $36.8  million at year-end  1995. As a percent of total loans
receivable,  these loan delinquencies increased from 1.02% at the end of 1995 to
1.04% at September 30, 1996. The slight  increase in the percentage of 30-90 day
delinquencies  to total loans is the result of the $135.3  million  reduction in
the loan base from year-end  1995 to September  30, 1996.  The decrease in 30-90
day delinquencies relates to the net effect of changes of such delinquencies for
various loan categories,  including the following, i) a decrease of $1.3 million
for residential  mortgage loans, ii) a decrease of $1.2 million for manufactured
housing loans, iii) a decrease of $1.1 million for credit card loans, and iv) an
increase of $2.5 million for student loans which are  fully-guaranteed.  Similar
delinquencies for other categories of loans changed by lesser amounts and tended
to offset.

        All  delinquent   loans  have  been  considered  by  management  in  its
evaluation of the adequacy of the allowances for loan losses.







                                      -14-

<PAGE>



Non-Accrual Loans:

        FFC places loans into a non-accrual  status when loans are contractually
delinquent  more  than  90  days.  If  appropriate,  loans  may be  placed  into
non-accrual  status prior to becoming 90 days delinquent based upon management's
analysis.  Non-accrual  loans are summarized,  for the dates  indicated,  in the
following table:

<TABLE>
<CAPTION>


                                                         September 30,       December 31,
                                                             1996                1995
                                                         -------------       --------
                                                                  (In thousands)

<S>                                                        <C>                       <C>    
One- to four-family residential                            $ 5,260                   $ 6,449
Multi-family residential                                     1,700                       873
Commercial and other real estate                               134                       162
Manufactured housing                                           945                       926
Consumer and other                                           3,114                     3,836
                                                           -------                   -------
                                                           $11,153                   $12,246
                                                           =======                   =======
</TABLE>


        Non-accrual  loans  decreased  by  $1.0  million  to  $11.2  million  at
September 30, 1996 versus $12.2 million at December 31, 1995. As a percentage of
net loans receivable, non-accrual loans decreased slightly to 0.32% at September
30, 1996 from 0.34% at December 31, 1995.  The 1996 net decrease in  non-accrual
loans  reflects  primarily  the  combination  of a decrease  of $1.1  million in
one-to-four  family residential  mortgage  non-accrual  accounts,  a decrease of
$500,000  in credit  card  non-accrual  accounts  and a decrease  of $300,000 in
commercial business loan non-accrual  accounts offset by an increase of $800,000
in multi-family residential non-accrual mortgage loans.

        The decrease in credit card non-accrual  loans relates  primarily to the
third-quarter  1996 sale of an affinity group of the credit card portfolio which
was experiencing higher than average delinquencies and charge-offs. This is also
demonstrated  by a decrease of $1.1 million in the 30-90 day  delinquent  credit
card accounts  between year-end 1995 and September 30, 1996, as scheduled in the
previous section. Aside from the effect of the sale of credit card accounts, FFC
is still showing delinquencies  somewhat higher than its historical  delinquency
levels,  following national  delinquency trends and statistics for this product.
However, FFC continues to experience  significantly  smaller overall credit card
delinquencies compared to such national statistics.

        The residential  mortgage loan non-accrual  decrease  represents  normal
changes as loans either return to more current performance (lesser  delinquency)
or migrate to foreclosed  status if the delinquency is not cured. The commercial
business loan  non-accrual  decrease  relates to the resolution or charge-off of
certain delinquent situations within this declining portfolio.  The multi-family
residential  mortgage  non-accrual  loan increase relates to a group of loans to
one  borrower,   totaling  $1.3  million,  which  recently  became  sufficiently
delinquent to warrant non-accrual status. Management is currently analyzing this
delinquent  group and  reviewing  the  collateral  properties  to determine  the
appropriate  course to  resolve  this  situation.  Consumer  loan,  manufactured
housing loan and commercial  mortgage loan non-accrual  totals changed by lesser
amounts. FFC has had no significant troubled debt restructurings during 1996.


                                      -15-

<PAGE>



        All  loans  included  in  non-accrual  status  have been  considered  by
management in its review of the adequacy of allowances for loan losses.

Non-Performing MBSs:

        During the third quarter of 1996, FFC sold two private issue MBSs, which
had been non-performing at the end of 1995. Each of these MBSs was structured as
a mezzanine security,  which is subordinate to the senior position of that issue
but is  structured  to be superior to other  subordinate  positions  designed to
absorb  first  losses.  FFC had not  received  full  monthly  payments  on these
securities  since 1993. The payments had been  interrupted due to  delinquencies
and foreclosures in the underlying  mortgage portfolio and all of the cash flows
were  directed  to  owners  of the  senior  position(s).  The  underlying  loans
comprising  these  securities  had been  serviced  by a  California  institution
formerly under the control of the Resolution Trust Corporation  ("RTC").  During
1994  and  1995,  servicing  was  transferred  from the RTC to the  trustee  and
subsequently to a third-party servicer.

        In 1994, independent national rating agencies downgraded these mezzanine
securities to below investment grade. Subsequently, writedowns of $13.1 million,
including $5.0 million in 1996, were recorded reflecting permanent impairment of
these  securities.  The writedowns were based upon  information  from the rating
agencies as well as discounted cash flow analyses performed by management, using
current assumptions for delinquency levels,  foreclosure rates,  recovery ratios
in the underlying portfolios, market prices, and other factors. Relative to both
mezzanine  issues,  the positions  subordinate  to FFC had been  eliminated  and
principal  losses of $6.8 million were  realized,  including $6.0 million during
1996. These realized  principal  losses were  anticipated in the  aforementioned
writedowns  previously  taken.  Upon  disposition,  an  additional  loss of $7.9
million was realized.

        Independent  national  rating  agencies have also  downgraded,  to below
investment  grade,  additional  MBSs of four unrelated  issuers in which FFC has
senior  ownership  positions  having an aggregate par value,  amortized cost and
carrying value of $18.5 million, $18.5 million and $16.0 million,  respectively,
at September 30, 1996. Three of these senior position  securities continue to be
performing assets and are superior to subordinate  positions  amounting to 6.44%
of the current  aggregate par value of the related  mortgage pool  securities at
September 30, 1996.

        Relative  to  the  fourth  senior   position  MBS,   collateralized   by
multi-family properties located in California,  the positions subordinate to FFC
have been  eliminated  during  1996.  Based upon this  event and other  factors,
management  has  determined  that  permanent  impairment  of this  security  has
occurred and the security,  thus, has been written down in the second quarter of
1996 by $900,000 to its approximate fair value of $2.6 million. Principal losses
of  $242,000  have been  realized  since the  writedown.  This  senior  position
security has otherwise continued to be a performing asset.

        As part of its current  investment  policy,  FFC does not  purchase  any
mezzanine  or  subordinated  position  MBSs  and has  further  strengthened  the
criteria  for private  issuer MBS  purchases.  No private  issuer MBSs have been
purchased since 1992.

        Management  has  taken  writedowns  relating  to  the  above  referenced
securities  based upon its  evaluations,  including  information from the rating
agencies as well as discounted cash flow analyses performed by management, which
are based upon certain assumptions for

                                      -16-

<PAGE>



future  delinquency  levels,  foreclosure  rates  and  recovery  ratios  in  the
underlying  portfolios.  There can be no assurance that these  evaluations  will
remain the same in the future should economic conditions,  market conditions, or
other factors differ  significantly  from the assumptions used. As such, further
writedowns could be experienced in the future.

Allowances for Loan Losses:

        FFC's loan  portfolios and off-balance  sheet  financial  guarantees are
evaluated on a continuing basis to determine the additions to the allowances for
losses and the related balance in the  allowances.  These  evaluations  consider
several factors including, but not limited to, general economic conditions, loan
portfolio  compositions,  loan collateral value, loan delinquencies,  prior loss
experience,   and  management's  estimation  of  future  potential  losses.  The
evaluation  of allowances  for loan losses  includes a review of both known loan
problems as well as a review of potential  problems based upon historical trends
and ratios.

        A summary of activity in the allowances  for loan losses,  for the three
months and nine months ended September 30, 1996 and 1995, follows:
<TABLE>
<CAPTION>

                                                             Three Months Ended              Nine Months Ended
                                                                September 30,                  September 30,
                                                               1996         1995              1996          1995
                                                               ----         ----              ----          ----
                                                                      (In thousands)

<S>                                                          <C>          <C>               <C>           <C>    
Allowances at beginning of period                            $23,755      $24,643           $25,235       $25,180
Provisions                                                     2,850        2,873             6,930         7,065
Charge-offs                                                   (3,357)      (2,694)           (9,427)       (8,193)
Recoveries                                                       348          309               858         1,079
                                                             -------      -------           -------       -------
Allowances at end of period                                  $23,596      $25,131           $23,596       $25,131
                                                             =======      =======           =======       =======
</TABLE>


        A discussion of loan loss  provisions  and  charge-offs  is presented in
"Management's  Discussion and Analysis--Comparison of the Unaudited Consolidated
Statements  of Income for the Three Months and Nine Months Ended  September  30,
1996 and 1995." An analysis of allowances by loan category and the percentage of
such  allowances  by category and in the  aggregate to loans  receivable  at the
dates indicated, follows:

<TABLE>
<CAPTION>

                                            September 30, 1996                        December 31, 1996
                                         --------------------------               ---------------------
                                                         As Percentage                            As Percentage
                                         Allowance       Of Total Loans           Allowance      Of Total Loans
                                           Amount          In Category              Amount         In Category
                                           ------          -----------              ------         -----------
                                                       (Dollars in thousands)

<S>                                      <C>                      <C>             <C>                       <C>  
Credit cards                             $ 6,997                  4.15%           $ 6,425                   3.00%
Residential real estate                    6,695                  0.33              7,726                    .34
Manufactured housing                       1,905                  1.70              3,034                   2.18
Commercial and non-resi-
    dential real estate                    3,634                  2.10              3,823                   2.50
Consumer                                   3,339                  0.82              3,029                    .84
Home equity                                  568                  0.19                562                    .20
Commercial business                          416                  3.40                585                   3.40
Education                                     42                  0.02                 51                    .02
                                         -------                                  -------
                                         $23,596                  0.68%           $25,235                    .70%
                                         =======                 =====            =======                  =====
</TABLE>


        The  allowances  for loan losses were $23.6  million,  or 0.68% of loans
receivable,  at  September  30, 1996  compared to $25.2  million,  or 0.70%,  at
December 31, 1995. The allowances for losses represented  211.57% of non-accrual
loans at September 30, 1996 as

                                      -17-

<PAGE>



compared to 206.07% at the end of 1995. The decrease in the aggregate allowances
for losses from  year-end  1995 to  September  30,  1996  relates  primarily  to
residential  real estate  loans and  manufactured  housing  loans based upon the
resolution of certain problem loan groups during 1996, for which  allowances had
been previously established.  Management believes that the allowances for losses
are sufficient based upon its current evaluations.

Foreclosed Properties and Repossessed Assets:

        Foreclosed  properties and other repossessed assets are summarized,  for
the dates indicated, as follows:
<TABLE>
<CAPTION>

                                                September 30,            December 31,
                                                    1996                      1995
                                                -------------               --------
                                                          (In thousands)

<S>                                                <C>                      <C>    
Foreclosed real estate properties                  $ 3,637                  $ 3,967
Manufactured housing owned                             185                      303
Consumer and other repossessed assets                  126                      102
                                                   -------                  -------
                                                     3,948                    4,372
Less allowances for losses                            (345)                    (993)
                                                   -------                  -------
                                                   $ 3,603                  $ 3,379
                                                   =======                  =======
</TABLE>


        Foreclosed properties,  net of allowances for losses, increased $200,000
to $3.6 million at September 30, 1996 from $3.4 million at December 31, 1995.

        A summary  of the  activity  in  allowances  for  losses  on  foreclosed
properties,  for the three months and nine months ended  September  30, 1996 and
1995, is presented below.
<TABLE>
<CAPTION>

                                                Three Months Ended           Nine Months Ended
                                                   September 30,                September 30,
                                                   -------------               -------------
                                                  1996           1995         1996           1995
                                                  ----           ----         ----           ----
                                                                  (In thousands)
<S>                                             <C>             <C>         <C>            <C>   
Allowances at beginning
 of period                                      $  424          $1,086      $  993         $1,146
Provisions                                         (10)             15        (342)            45
Charge-offs                                        (69)            (53)       (306)          (143)
                                                ------          ------      ------         ------
Allowances at end of
 period                                         $  345          $1,048      $  345         $1,048
                                                ======          ======      ======         ======
</TABLE>


         The allowances for losses on foreclosed properties have been maintained
at levels  adequate  to  provide  for  reasonable  potential  losses  within the
existing foreclosed property portfolio.  The most recent additions of foreclosed
properties  have been  residential  properties with lower risks which allows for
the reduction of the allowance balance while realizing losses within the current
portfolio of  properties.  Provisions for losses on foreclosed  properties  were
credited  during  1996 to  reverse  the  allowance  related  to  non-residential
properties, none of which are in inventory at September 30, 1996.

         A large  commercial real estate  property  (having a carrying amount of
$1.0 million or greater) in Fort Worth, Texas included in foreclosed  properties
at December 31, 1995 was sold earlier in 1996.  Also included in the table below
is a previously foreclosed property (Milwaukee) which was dividended to FFC from
FF Bank and is currently  classified as a real estate  investment held for sale.
These properties are carried at the lower of cost or fair value.

                                      -18-

<PAGE>



<TABLE>
<CAPTION>

                                                                    Carrying Value At
Property                                                        September 30, December 31,
  Type                 Property Location                           1996                  1995
--------               -----------------                       -------------         --------
                                                                      (In thousands)

<S>                    <C>                                       <C>                     <C>    
Retail                 Milwaukee, Wisconsin                      $ 1,043                 $ 1,089
Retail                 Fort Worth, Texas                              --                   1,000
</TABLE>


        All of the above foreclosed real estate  properties,  repossessed assets
and real estate  investments held for sale have been considered by management in
its evaluation of the adequacy of allowances for losses.

Classified Assets, Including Non-Performing Assets:

        For regulatory purposes, FF Bank utilizes a comprehensive classification
system  for  thrift  institution  problem  assets.  This  classification  system
requires  that problem  assets be  classified  as  "substandard",  "doubtful" or
"loss," depending upon certain  characteristics of the particular asset or group
of assets as defined by supervisory regulations.

        An asset is classified  "substandard" if management believes it contains
defined characteristics relating to borrower net worth, paying capacity or value
of collateral  which  indicate  that some loss is  distinctly  possible if noted
deficiencies are not corrected.  "Doubtful" assets have the same characteristics
present in  substandard  assets but to a more serious  degree,  to the belief of
management,  such that it is  improbable  that the asset could be  collected  or
liquidated  in full.  "Loss"  assets are deemed to be  uncollectible  or of such
minimal  value that  their  continuance  as assets  without  being  specifically
reserved is not warranted.  Substandard and doubtful classifications require the
establishment  of prudent general  allowance for loss amounts while loss assets,
to the  extent  that such  assets  are  classified  as a "loss,"  require a 100%
specific allowance or that the asset be charged off.

        In general,  classified assets include  non-performing assets plus other
loans and assets,  including  contingent  liabilities  (see Note D), meeting the
criteria for  classification.  Non- performing assets include non-accrual loans,
non-performing  MBSs or  assets i) which  were  previously  loans  which are not
substantially  performing under the contractual  terms of the original notes, or
ii) for which known  information  about  possible  credit  problems of borrowers
causes  management to have serious doubts as to the ability of such borrowers to
comply  with  current  contractual  terms.  This  non-performing  characteristic
impacts  directly upon the interest income  normally  expected from such assets.
Specifically included are the loans held on a non-accrual basis,  non-performing
MBSs, and real estate judgments subject to redemption and foreclosed  properties
for which FF Bank has obtained title.













                                      -19-

<PAGE>




        Classified  assets,   including  non-performing  assets,  for  FF  Bank,
categorized by type of asset are set forth in the following table:


<TABLE>
<CAPTION>
                                                               September 30,            December 31,
                                                                   1996                     1995
                                                               -------------            --------
                                                                        (In thousands)
<S>                                                               <C>                     <C>    
Classified assets:
   Non-performing assets:
     Non-accrual loans                                            $11,153                 $12,246
     Non-performing MBSs                                               --                  12,858
     Real estate held for sale by FFC                               1,263                   1,309
     Foreclosed properties and other
        repossessed assets                                          3,603                   3,379
                                                                  -------                 -------
          Total Non-Performing Assets                              16,019                  29,792

   Add back general valuation allowances net-
     ted against foreclosed properties above                          432                     993
   Adjustment for non-performing residential
     loans not classified due to low
     loan-to-appraisal value                                         (912)                   (584)
   Adjustment for real estate held for sale
     not included in FF Bank classified
     assets                                                        (1,263)                 (1,309)
   Additional classified performing loans:
     Residential real estate                                          578                   1,013
     Commercial real estate                                         6,469                   5,890
     Consumer and other                                               766                     698
   Additional classified performing MBS                             2,550                      --
                                                                  -------                 -------
          Total Classified Assets                                 $24,639                 $36,493
                                                                  =======                 =======
</TABLE>


          During the nine months ended  September  30, 1996,  classified  assets
decreased $11.9 million to $24.6 million from $36.5 million at December 31, 1995
as the  net  result  of the  disposal  of the  two  non-accrual  mortgage-backed
securities  totaling $12.9 million at year-end 1995 referred to previously  (see
"Non-Performing  MBSs"),  the $2.6  million  addition of the  performing  senior
position MBS collateralized by multi-family properties, as also discussed above,
and the $1.0 million reduction in non-accrual  loans, as discussed in an earlier
section. The changes in additional  classifications for various other performing
loan categories  substantially  offset as such commercial real estate  mortgages
and  consumer-related  loans increased and residential mortgage loans decreased.
These additional classifications are based on certain characteristics identified
as potential  weaknesses.  As a percentage  of total assets,  classified  assets
decreased from 0.67% at year-end 1995 to 0.44% at September 30, 1996.

                  The following  table sets forth, at the dates  indicated,  the
one performing  commercial  real estate mortgage loan in excess of $1.0 million,
included  in  classified   assets  due  to  the  possible   adverse  effects  of
identifiable future events.

<TABLE>
<CAPTION>

                                                                   Loan Amount Classified
Property Type Of           Property                           September 30,                December 31,
Loan Collateral            Location                               1996                         1995
----------------          ----------                          -------------                --------
                                                                      (In thousands)
<S>                       <C>                                 <C>                            <C>   
Office/Land               Sheboygan, Wisconsin                $ 3,567                        $3,596

</TABLE>

          All  adversely  classified  assets at September  30,  1996,  have been
considered  by management  in its  evaluation of the adequacy of allowances  for
losses.


                                      -20-

<PAGE>




Deposits and Other Liabilities:

          Deposits   decreased  $60.0  million  during  the  nine  months  ended
September 30, 1996  including  interest  credits of $122.3 million offset by net
cash outflows of $182.3 million.  The weighted average cost of deposits of 4.53%
at September 30, 1996 was slightly lower than the 4.55% reported at December 31,
1995.

          Advance  payments by borrowers  for taxes and  insurance  increased by
$41.1  million  during the first  nine  months of 1996 as a result of the normal
cumulative  monthly escrow  deposits made by borrowers less interim  payments of
taxes and insurance premiums.

          Other  liabilities  decreased  $11.1  million  from  $77.9  million at
December  31, 1995 to $66.8  million at  September  30,  1996.  The higher other
liabilities  balance  at  year-end  1995  represented  outstanding  real  estate
property tax checks of $35.7 million issued to  municipalities  on behalf of the
borrowers  and as those  checks were paid during early 1996,  other  liabilities
decreased  significantly.  This decrease was offset by a $28.8  million  payable
recorded in the third  quarter of 1996 for the  recapitalization  of the Savings
Association Insurance Fund ("SAIF"). (See "Non-Interest Expense").

Borrowings:

          At September 30, 1996, FFC's consolidated  borrowings increased $138.3
million to $708.8  million from $570.5  million at December 31, 1995. In January
1996, FFC redeemed all of its  outstanding 8%  Subordinated  Notes due November,
1999, which aggregated $54.9 million at the date of redemption.  This redemption
was offset by a $145.8  million net increase in  short-term  reverse  repurchase
agreements and a $49.7 million net increase in  shorter-term  FHLB advances used
to fund the purchase of U.S. Government Agency MBSs.

Stockholders' Equity:

          Stockholders'  equity at  September  30, 1996 was $401.1  million,  or
7.17% of total assets, as compared to $384.9 million,  or 7.04% of total assets,
at December 31, 1995. The major changes in stockholders'  equity included i) net
income of $30.5  million  earned  during the first nine months of 1996 offset by
ii) cash  dividend  payments to  stockholders  of $13.5  million.  Stockholders'
equity per share  increased from $12.97 per share at year-end 1995 to $13.41 per
share at September 30, 1996.

Regulatory Capital:

          As  set  forth  in  Note  F to the  unaudited  consolidated  financial
statements,  FF Bank exceeds all regulatory capital requirements mandated by the
OTS and FDIC.










                                      -21-

<PAGE>




Loan Originations:

          A comparison  of loan  originations  and  purchases,  including  loans
originated  for sale but excluding  purchases of MBSs, for the first nine months
of 1996 and 1995 is set forth below:

<TABLE>
<CAPTION>
                                                      Nine Months Ended September 30,
                                                  1996              Percent        1995         Percent
                                                  ----              -------        ----         -------
                                                          (Dollars in thousands)
<S>                                             <C>               <C>           <C>               <C>  
Loan Type
 Mortgage:
   One- to four-family                          $  479,246           57.8%      $  343,731         51.1%
   Multi-family                                     27,353            3.3           18,540          2.8
   Commercial/non-residential                       54,355            6.6           21,546          3.2
                                                ----------          -----        ---------        -----
       Total mortgage origina-
         tions                                     560,954           67.7          383,817         57.1

 Consumer                                          202,888           24.5          170,316         25.4
 Student                                            49,818            6.0           56,037          8.3
 Home equity-net                                    11,624            1.4           39,097          5.8
 Manufactured housing                                   --             --           18,288          2.7
 Credit cards - net                                  2,260             .3            1,975           .3
 Commercial business                                   967             .1            2,536           .4
                                                ----------          -----        ---------        -----
       Total loans originated                      828,511          100.0%         672,066        100.0%
                                                                    =====                         =====
 Decrease(increase) in undisbursed
    loan proceeds                                  (18,241)                          7,162
                                                ----------                      ----------
       Total loans disbursed                    $  810,270                      $  679,228
                                                ==========                      ==========
</TABLE>


        Total loan  originations  increased to $828.5 million for the first nine
months of 1996 from $672.1  million  for the same period in 1995.  This net 1996
increase  of $156.4  million  was  primarily  attributable  to a $177.2  million
increase in mortgage loan originations.

        One- to four-family mortgage loan originations  increased $135.5 million
to $479.2  million  for the first  nine  months  of 1996 as  compared  to $343.7
million for the same period in 1995. The increase in  originations  in 1996 over
1995 reflects  increased borrower demand as interest rates during the first nine
months of 1996 were  generally  lower than the market  interest rates during the
same  period in 1995.  Interest  rates rose in the first half of 1996,  and then
leveled off in the third  quarter,  causing  borrower  preference to turn toward
adjustable-rate mortgage loans.  Approximately 46% of originations for the first
nine  months  of 1996 were  adjustable-rate  mortgage  loans  which are held for
investment purposes. Longer-term fixed-rate mortgages are normally sold into the
secondary  market.  At September  30, 1996,  one- to  four-family  mortgage loan
applications in process and commitments totaled $50.4 million and $32.7 million,
respectively,  as compared to $51.2  million and $24.7  million at December  31,
1995.

        Consumer loan originations  increased $32.6 million to $202.9 million in
the first nine  months of 1996 as  compared  to $170.3  million  during the same
period in 1995 due to the purchase of a $7.3 million  automobile  loan portfolio
in 1996 as well as to the continued success of a second mortgage loan product.

        Student loan  originations  decreased to $49.8 million  during the first
nine  months of 1996  from  $56.0  million  for the same  period  in 1995.  This
decrease of $6.2  million is the result of a decrease in  government  guaranteed
portfolio purchases from other lenders of $13.4 million offset by an increase in
student loan originations of $7.2 million.


                                      -22-

<PAGE>



        Home equity loan balances  increased $11.6 million during the first nine
months of 1996 as compared to a $39.1 million increase during the same period in
1995.  Balances increased at a slower rate in 1996 because new originations were
offset by refinancing and payoffs  resulting in record  repayment levels for the
product line in early 1996.  Payment levels have stabilized in the third quarter
of 1996.

        FFC  discontinued  dealer-originated  mobile home financing in late 1994
due to pricing practices by competitors.  However, in the third quarter of 1995,
an $18.3 million portfolio of seasoned FHA insured and VA guaranteed mobile home
loans was purchased from GNMA.

Asset/Liability Management:

        The objective of FFC's asset/liability policy is to manage interest rate
risk so as to maximize net interest  income over time in changing  interest-rate
environments.  To this end,  management  believes that  strategies  for managing
interest-rate   risk  must  be  responsive  to  changes  in  the   interest-rate
environment and must recognize and accommodate the market demands for particular
types of deposit and loan products.

        Interest-bearing assets and liabilities can be analyzed by measuring the
magnitude by which such assets and liabilities are  interest-rate  sensitive and
by  monitoring an  institution's  interest-rate  sensitivity  "gap." An asset or
liability is determined  to be  interest-rate  sensitive  within a specific time
frame if it  matures or  reprices  within  that time  period.  An  interest-rate
sensitivity   "gap"  is  defined  as  the  difference   between  the  amount  of
interest-earning  assets anticipated to mature or reprice within a specific time
period and the amount of interest-costing  liabilities  anticipated to mature or
reprice  within the same time  period.  A gap is  considered  positive  when the
amount of  interest-rate  sensitive  assets exceeds the amount of  interest-rate
sensitive liabilities that mature or reprice within a given time frame. A gap is
considered  negative  when the  amount of  interest-rate  sensitive  liabilities
exceeds  the amount of  interest-rate  sensitive  assets  that mature or reprice
within a specified time period.

        The   table   on   page   25   sets   forth   the   combined   estimated
maturity/repricing  structure  of  FFC's  consolidated  interest-earning  assets
(including  net items) and  interest-costing  liabilities at September 30, 1996.
Assumptions  regarding  prepayment  and  withdrawal  rates are based  upon FFC's
historical experience,  and management believes such assumptions are reasonable.
The table does not  necessarily  indicate  the impact of general  interest  rate
movements on FFC's net interest income because  repricing of certain  categories
of  assets  and  liabilities  through,  for  example,  prepayments  of loans and
withdrawals of deposits,  is beyond FFC's control.  As a result,  certain assets
and  liabilities  indicated  as  repricing  within a stated  period  may in fact
reprice at different times and at different rate levels.  Further,  in the event
of a change in  interest  rates,  prepayment  and early  withdrawal  levels  may
deviate significantly from those assumed in calculating the data in the table.

        FFC's consolidated  negative one-year  interest-rate  sensitivity gap at
September  30, 1996 was $112.2  million or 2.00% of total  assets.  The one-year
negative gap decreased  $87.6 million from the December 31, 1995 negative gap of
$199.8 million or 3.65% of total assets at that date.

        FFC's consolidated  one-year negative gap position of 2.00% at September
30,  1996  falls  within  management's  operating  range of a 10%  positive  gap
position to a 10% negative

                                      -23-

<PAGE>



gap position. In view of the current  interest-rate  environment and the related
impact on customer behavior,  management believes that it is extremely important
to weigh and balance the effect of asset/liability  management  decisions in the
short-term in its efforts to maintain net interest margins and acceptable future
profitability.  As such,  management believes that it has been able to achieve a
consistent  net  interest   margin  while  still  meeting  its   asset/liability
management objectives.

        In compliance with OTS regulations,  FF Bank also measures and evaluates
interest-rate  risk  via  a  separate  methodology.  The  net  market  value  of
interest-sensitive  assets and  liabilities  is  determined by measuring the net
present  value of future cash flows under  varying  interest  rate  scenarios in
which  interest rates would  theoretically  increase or decrease up to 400 basis
points on a sudden and prolonged basis. This theoretical  analysis at the end of
the third quarter of 1996 indicates that FF Bank's  current  financial  position
should adequately  protect FF Bank, and thus FFC, from the effects of rapid rate
changes.  The OTS has added an interest-rate risk capital  calculation such that
an  institution  with  a  measured  interest-rate  risk  exposure  greater  than
specified  levels must deduct an  interest-rate  risk component when calculating
the OTS risk-based capital  requirement.  The final  implementation of this rule
was pending at September 30, 1996 as the OTS has delayed the  effective  date of
the  regulation  pending its adoption of a process by which an  institution  may
appeal an OTS interest-rate risk capital deduction  determination.  At September
30, 1996, FF Bank would not have been required to deduct an  interest-rate  risk
component under the OTS regulations.

                                      -24-

<PAGE>



   FIRST FINANCIAL CORPORATION CONSOLIDATED GAP ANALYSIS AT SEPTEMBER 30, 1996


<TABLE>
<CAPTION>

                                       Three                      Greater       Greater        Greater   
                                       Months      Four Months   Than One      Than Three     Than Five  
                                        and          Through      Through       Through        Through   
                                       Under        One Year    Three Years    Five Years     Ten Years  
                                     ---------     ----------   -----------    -----------    ---------- 
                                                                            (Dollars in thousands)
<S>                                  <C>           <C>          <C>            <C>           <C>         
Rate-sensitive assets:
   Investments and interest-
     earning deposits, including
     federal funds (a)(b)            $  183,178    $   10,300   $   61,720     $   43,447    $    471    
   Mortgage-related securities (b)      565,956       733,942       64,956         38,657      44,575    
   Mortgage loans:
     Fixed-rate (c)(d)                   52,896       136,288      306,678        207,115     241,818    
     Adjustable-rate (c)                213,944       558,860      348,549             --          --    
   Other loans                          691,223       198,754      212,199         79,949      56,997    
                                     ----------    ----------   ----------     ----------    --------    
                                      1,707,197     1,638,144      994,102        369,168     343,861    

Rate-sensitive liabilities:
   Deposits (e)(f):
     Checking                           116,635        24,572       61,364         47,949      75,085    
     Money market accounts              104,225        57,208      117,006         50,471      42,648    
     Passbook                           270,317       196,880       56,065         40,366      58,128    
     Certificates of deposit            698,413     1,292,025      806,644        126,692       3,305    
   Borrowings                           695,836         1,419        2,707          2,897         731    
                                     ----------    ----------   ----------     ----------    --------    
                                      1,885,426     1,572,104    1,043,786        268,375     179,897    
                                     ----------    ----------   ----------     ----------    --------    


GAP (repricing difference)           $ (178,229)   $   66,040   $  (49,684)    $  100,793    $163,964    
                                     ==========    ==========   ==========     ==========    ========    


Cumulative GAP                       $ (178,229)   $ (112,189)  $ (161,873)    $ ( 61,080)   $102,884    
                                     ==========    ==========   ==========     ==========    ========    


Cumulative GAP/Total assets              (3.19)%       (2.00)%      (2.89)%        (1.09)%       1.84%   
                                     ==========    ==========   ==========     ==========    ========    
</TABLE>
<PAGE>

                                           Greater                              
                                           Than Ten    Greater                  
                                           Through      Than                    
                                           20 Years    20 Years         Total   
                                          ----------   --------       -------   
                                                                                
Rate-sensitive assets:                                                          
   Investments and interest-                                                    
     earning deposits, including                                                
     federal funds (a)(b)                $ 33,217     $   41,850     $  374,183 
   Mortgage-related securities (b)         14,166            121      1,462,373 
   Mortgage loans:                                                              
     Fixed-rate (c)(d)                    157,863          3,169      1,105,827 
     Adjustable-rate (c)                       --             --      1,121,353 
   Other loans                             15,188             --      1,254,310 
                                         --------     ----------     ---------- 
                                          220,434         45,140      5,318,046 
                                                                                
Rate-sensitive liabilities:                                                     
   Deposits (e)(f):                                                             
     Checking                              68,054         37,400        431,059 
     Money market accounts                 10,826          1,203        383,587 
     Passbook                              36,994          8,678        667,428 
     Certificates of deposit                   --             --      2,927,079 
   Borrowings                               1,910          3,320        708,820 
                                         --------     ----------     ---------- 
                                          117,784         50,601      5,117,973 
                                         --------     ----------     ---------- 
                                                                                
                                                                                
GAP (repricing difference)               $102,650     $  ( 5,461)    $  200,073 
                                         ========     ==========     ========== 
                                                                                
                                                                                
Cumulative GAP                           $205,534     $  200,073                
                                         ========     ==========                
                                                                                
                                                                                
Cumulative GAP/Total assets                  3.67%          3.58%               
                                         ========     ==========                
                                                                                
                                        
(a)  Investments  are adjusted to include FHLB stock  totaling  $33.2 million as
     investments in the "Greater Than Ten Through 20 Years" category.

(b)  Investment and mortgage-related securities are presented at carrying value,
     including net unrealized gain or loss on available-for-sale securities.

(c)  Based upon 1) contractual  maturity,  2) repricing date, if applicable,  3)
     scheduled repayments of principal and 4) projected prepayments of principal
     based upon FFC's  historical  experience  as modified  for  current  market
     conditions.

(d)  Includes loans held for sale.

(e)  Deposits include $54.3 million of advance payments by borrowers for tax and
     insurance and exclude accrued interest on deposits of $ 9.7 million.

(f)  FFC has assumed  that its  passbook  savings,  checking  accounts and money
     market accounts would have projected annual  withdrawal  rates,  based upon
     FFC's historical experience, of 26%, 34% and 42%, respectively.



                                      -25-

<PAGE>



                                COMPARISON OF THE
                   UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
                   FOR THE THREE MONTHS AND NINE MONTHS ENDED
                           SEPTEMBER 30, 1996 AND 1995

Selected Income Statement Information:

         For the third quarter of 1996, FFC reported a net loss of $3.7 million,
down from the $17.8  million  reported for the third quarter of 1995 due to i) a
$28.8  million  one-time  assessment  to  recapitalize  the  SAIF and ii) a $4.2
million charge  reflecting a change in accounting for intangible  assets.  Fully
diluted earnings per share for the 1996 quarter amounted to ($0.12) per share as
compared to $0.59 per share for the 1995  quarter.  Excluding  the above  items,
fully  diluted  earnings per share for the 1996 period would have been $0.60 per
share.  Excluding the effect of the SAIF  assessment and the accounting  change,
the annualized return on assets for the third quarter of 1996 increased to 1.31%
from 1.30% for 1995 while the annualized  return on average equity for the third
quarter of 1996 was 17.78%, compared to 19.69% for the third quarter of 1995.

         For the first  nine  months of 1996,  FFC  reported  income,  before an
extraordinary  charge,  of $31.2  million  and net income of $30.5  million.  In
comparison,  net income of $44.9  million was reported for the first nine months
of 1995. The 1996 extraordinary charge of $686,000, or $0.02 per share, resulted
from  costs   associated  with  the  early   redemption  of  FFC's   outstanding
subordinated  notes  originally  scheduled to mature in November  1999. The 1995
results included a $4.0 million acquisition charge, or $0.14 per share,  related
to the FirstRock  acquisition.  Fully  diluted  earnings per share for the first
nine  months of 1996  amounted  to $1.02 per  share  prior to the  extraordinary
charge,  while net income per share was $1.00 per share as compared to $1.48 per
share  for the  first  nine  months  of 1995.  Excluding  the  SAIF  assessment,
accounting  change,  extraordinary  item and the 1995  acquisition  charge,  the
annualized return on assets for the first nine months of 1996 increased to 1.29%
from 1.19% for 1995, while the annualized return on average equity for the first
nine months of 1996 was 17.63%, compared to 18.76% for the same period of 1995.

Net Interest Income:

         Net interest income  increased $2.6 million to $48.3 million during the
third  quarter of 1996 from $45.7  million for the third  quarter of 1995 due to
the net effect of i) an increase in average balances of interest-earning  assets
and  interest-bearing  liabilities  from  $5.208  billion  and  $5.013  billion,
respectively,  in 1995 to $5.349 billion and $5.094  billion,  respectively,  in
1996,  and ii) an  increase  in the net  interest  margin to 3.64% for the third
quarter  of 1996 from the 3.55%  reported  for the third  quarter  of 1995.  The
increase  in  average  interest-earning  assets  in  1996  was  augmented  by an
improvement in the earning- asset ratio from 103.89% in 1995 to 104.98% in 1996.
The average  yield of  interest-earning  assets  (8.08% in 1995 versus  8.00% in
1996) decreased by 8 basis points, in comparison to a 13 basis point decrease in
the average cost of interest-bearing  liabilities (4.71% in 1995 versus 4.58% in
1996).

         Net  interest  income  increased  $ 2.6  million  during the first nine
months  of  1996   primarily   due  to  an  increase  in  average   balances  of
interest-earning  assets and a decrease  in  interest-bearing  liabilities  from
$5.225 billion and $5.050 billion,  respectively,  in 1995 to $5.237 billion and
$4.992 billion, respectively, in 1996. The net interest margin of 3.57%

                                      -26-

<PAGE>



for the first nine months of 1996 was up from the 3.49%  reported  for the first
nine months of 1995. The increase in average interest-earning assets in 1996 was
again  augmented by an  improvement in the  earning-asset  ratio from 103.47% in
1995 to 104.90% in 1996. The average yield of interest-earning  assets (7.98% in
1995 versus 7.96% in 1996) decreased by 2 basis points, which was similar to the
3 basis  points  decrease in the average  cost of  interest-bearing  liabilities
(4.64% in 1995 versus 4.61% in 1996).

Interest Spread:

         The  following  table sets forth the weighted  average  yield earned on
FFC's  interest-earning  assets,  the  weighted  average  interest  rate paid on
deposits and borrowings,  the net spread between yield earned and rates paid and
the net interest  margin during the three months and nine months ended September
30, 1996 and 1995. A comparison  of similar data at September  30, 1996 and 1995
is also shown.

<TABLE>
<CAPTION>

                                       For the             For the
                                  Three Months Ended   Nine Months Ended        At
                                     September 30,       September 30,      September 30,
                                     -------------       -------------      -------------
                                   1996       1995      1996      1995      1996      1995
                                   ----       ----      ----      ----      ----      ----
<S>                                <C>       <C>       <C>       <C>       <C>       <C>  
Weighted average yield
  on interest-earning
  assets                           8.00%     8.08%     7.96%     7.98%     7.93%     8.06%

Weighted average rate
  paid on deposits and
  borrowings                       4.58      4.71      4.61      4.64      4.63      4.74
                                  -----     -----     -----     -----     -----     -----

Interest Spread                    3.42%     3.37%     3.35%     3.34%     3.30%     3.32%
                                  =====     =====     =====     =====     =====     =====

Net interest margin
  (net interest income
  as a percentage of
  earning assets)                  3.64%     3.55%     3.57%     3.49%     3.49%     3.46%
                                  =====     =====     =====     =====     =====     =====
</TABLE>


       The  interest  spread  was 3.42%  and 3.35% for the three  month and nine
month periods  ended  September 30, 1996, as compared to 3.37% and 3.34% for the
same  periods  in 1995 due to the  factors  noted  above.  The  interest  margin
increased to 3.64% and 3.57%,  respectively,  for the three month and nine month
periods  ended  September 30, 1996 from 3.55% and 3.49%,  respectively,  for the
1995  periods.  The interest  spread and the net interest  margin were 3.30% and
3.49%,  respectively,  at  September  30,  1996 as  compared to 3.32% and 3.46%,
respectively, at September 30, 1995.

Provisions For Losses on Loans:

       Provisions for loan losses  remained steady at $2.9 million for the third
quarter of 1996 and the 1995 quarter while the provisions  decreased $100,000 to
$6.9 million for the nine months ended  September  30, 1996 compared to the same
period in 1995.  Charge-offs for both 1996 periods  displayed  exceeded  related
period provisions due to i) previously  provided for charge-offs  related to the
manufactured  housing  portfolio  and ii)  lower  provisions  added  to the loss
allowances for  residential  mortgage loans based on current  evaluations of the
portfolio.

       The  following  table  summarizes  FFC's  net  charge-off  experience  by
category for the three months and nine months ended September 30, 1996 and 1995.

                                      -27-

<PAGE>



<TABLE>
<CAPTION>

                                             For the Three Months                      For the Nine Months
                                              Ended September 30,                      Ended September 30,
                                         -----------------------------------------------------------------------
                                           1996                  1995               1996                1995
                                         ---------           -----------         ----------          -------
                                            Net                  Net                 Net                 Net
                                         Charge-offs         Charge-offs         Charge-offs         Charge-offs
                                         -----------         -----------         -----------         -----------
Loan Type                                                       (Dollars in thousands)

<S>                                         <C>                 <C>                 <C>                  <C>   
Credit cards                                $2,172              $1,832              $6,485               $5,006
Manufactured housing                           393                 233                 871                  924
Residential real estate                        224                 172                 624                  736
Consumer and other                             191                 139                 390                  232
Commercial business                             29                   9                 199                  216
                                            ------              ------              ------               ------
                                            $3,009              $2,385              $8,569               $7,114
                                            ======              ======              ======               ======

Net charge-offs as a
  percent of average loans
  outstanding (annualized)                    0.34%               0.27%               0.32%                0.27%
                                            ======              ======              ======               ======
</TABLE>


        The $600,000 increase in net charge-offs for the quarter ended September
30, 1996 versus the same period in 1995  relates  primarily  to the  increase in
credit card loan net  charge-offs.  Similarly,  the $1.5 million increase in net
charge-offs  for the first nine months of 1996 compared to the first nine months
of 1995 relates primarily to the credit card loss experience.  While the current
increased  level of credit card loan net  charge-offs  is following the national
trend,  FFC's  experience is at a somewhat  lower  percentage  than the national
averages.  During the third quarter of 1996,  FFC sold an affinity  group of the
credit  card  loan   portfolio  that  was   experiencing   higher  than  average
delinquencies  and  charge-offs.  That sale should help to reduce  future credit
card losses.  Previously  management  had  increased the  provisions  for losses
allocated  to credit  card  loss  allowances  to keep  pace with net  charge-off
experience and that allowance at September 30, 1996 is 4.15% of credit card loan
balances compared to 3.00% as of December 31, 1995.

        The  OTS  and  the  FDIC,  as an  integral  part  of  their  supervisory
examination process,  periodically review FF Bank's allowances for losses. These
agencies may require FF Bank to recognize additions to the allowances based upon
their  judgment  of  information   available  to  them  at  the  time  of  their
examination.  A  regularly  scheduled  supervisory  examination  by the  OTS was
completed in early 1996 and no material corrective actions were required.

        Management  of FFC  and FF  Bank  believe  that  the  current  level  of
provisions  for losses are  sufficient  based upon its allowance  criteria.  See
"Allowances for Loan Losses" for further discussion.

Non-Interest Income:

        Non-interest  income decreased $400,000 to $12.4 million for the quarter
ended  September  30,  1996 from $12.8  million in 1995.  Deposit fee income and
insurance/ brokerage commissions  increased $400,000 and $300,000  respectively,
in 1996.  Service fees on loans sold  decreased  $300,000 in 1996 as the average
servicing  rate on such  serviced  loans  continued  to  decline  as a result of
competition in the secondary  mortgage market. The gain on disposition of loans,
MBSs,  and investment  securities  decreased $1.1 million in 1996 due to the net
effect of i) a realized loss of $10.5 million on the sale of  available-for-sale
MBSs during the third  quarter of 1996 (see  "Mortgage-Related  Securities"  and
"Non- Performing MBSs"), ii) a $100,000 gain on sale of investment securities in
1996 as opposed to a $1.2 million gain in 1995,  iii) an $11.2  million net gain
realized  on the  previously  discussed  sale of a credit  card  affinity  group
relationship having outstanding balances of

                                      -28-

<PAGE>



$47.9 million and iv) a decrease of $800,000 on gains  achieved upon the sale of
loans in the secondary mortgage market and the realization of related originated
mortgage servicing rights ("OMSRs").  Gains realized from the sale of loans, and
the  recognition  of  related  OMSRs,   decreased  in  1996  due  to  the  lower
interest-rate  environment prevailing during the early part of the third quarter
of 1995,  compared  to 1996,  as  borrowers  shifted to longer  term  fixed-rate
financing  and as a result of the 1995  change in  accounting  methodology.  FFC
sells long-term, fixed-rate mortgage loans in the normal course of interest-rate
risk  management.  Gains or losses realized from the sale of loans held for sale
and the recognition of related OMSRs can fluctuate  significantly from period to
period  depending  upon the  volatility of interest rates and the volume of loan
originations.  Thus, results of sales in any one period may not be indicative of
future results.

        Non-interest income increased to $34.0 million for the nine months ended
September 30, 1996 from $33.4  million for the same period in 1995.  Deposit fee
income increased $1.3 million in 1996. Insurance and brokerage sales commissions
increased  $200,000 as FFC's  insurance  agency  subsidiary  realized  continued
stable results.  Loan fee income also increased $700,000 in 1996. Loan servicing
income  decreased  $900,000  for the  first  nine  months  of 1996.  The gain on
disposition of loans, MBSs, and investment securities decreased $300,000 in 1996
due to the net effect of i) a realized loss of $12.2 million on the  disposition
of  available-for-sale  MBSs, ii) a $700,000  decrease in the sale of investment
securities  in 1996,  iii) the above  mentioned  $11.2  million  gain on sale of
credit cards and iv) an increase of $1.4 million on gains achieved upon the sale
of loans in the secondary mortgage market and the realization of related OMSRs.

        During the third quarter, FF Bank received regulatory approvals from the
Office of the  Comptroller  of the  Currency  ("OCC")  and the OTS to  charter a
limited-purpose  national  credit card bank  ("CEBA-Bank").  The  CEBA-Bank,  an
operating  subsidiary of FF Bank, became operational during the third quarter of
1996 and has the authority to export  Wisconsin rates and fees nationwide to all
FFC credit card customers  under the National Bank Act. It is expected that such
uniform  application of law will i) reduce compliance costs, ii) reduce the risk
of violation of local law and iii) allow FFC and its subsidiary banks to enhance
their credit card rate and fee structure,  thereby potentially  increasing FFC's
profitability  depending  upon customer  behavior and other  factors.  It is not
management's  intention  to expand  the scope of FFC's  credit  card  operations
beyond  its  Midwest  regional  markets  as a  result  of the  formation  of the
CEBA-Bank.

Non-Interest Expense:

        Non-interest  expenses  increased  $35.3  million for the quarter  ended
September  30, 1996 as  compared  to the same  period in 1995,  due to the $28.8
million one-time SAIF assessment charge and the $4.2 million goodwill accounting
change.  The SAIF assessment  represents FFC's share of a one-time charge by the
FDIC to fund its SAIF at 1.25% of overall  thrift  deposits  and achieve  parity
with the FDIC's Bank Insurance  Fund. On an ongoing basis,  FFC's annual deposit
insurance  assessment will decrease to 6.4 cents per $100 of assessable deposits
from the current 23 cent rate. As such,  based upon current levels of assessable
deposits,  FFC's annual federal  insurance premium will decline by approximately
$7.2 million,  or $0.15 per share on an after-tax  basis  (excluding the funding
cost related to the one-time assessment). The $4.2 million reduction in goodwill
and core deposit  intangibles  relates primarily to FFC's re-evaluation of these
intangibles in accordance with

                                      -29-

<PAGE>



SFAS  No.  72  ("Accounting  for  Certain  Acquisitions  of  Banking  or  Thrift
Institutions")  in  relation to  acquisitions  undertaken  in the early  1980's.
Non-interest  expenses,  excluding  the above  one-time  items,  increased  as a
percentage of average  assets to 2.15% for the third quarter of 1996 as compared
to 2.04% for the same period in 1995. Controllable  non-interest expenses, which
exclude the amortization of intangible  assets and the net cost of operations of
foreclosed  properties  increased  slightly  to 2.04% of average  assets for the
quarter  ended  September  30,  1996 as compared to 1.94% for the same period in
1995.  FFC's  efficiency  ratio  (which  represents  the  ratio of  controllable
expenses to recurring  income)  remained  stable at 48.22% for the quarter ended
September  30, 1996,  as compared to 47.28% for the  corresponding  1995 period,
reflecting  the  continuing  efforts to control  expenses  in  relation to FFC's
overall operations.

        Non-interest expenses increased approximately $27.5 million for the nine
months  ended  September  30,  1996 as  compared  to the  same  period  in 1995,
primarily  due to i) the one-time  expenses of $33.0  million  noted above,  ii)
acquisition  costs,  totaling  $6.5  million,  incurred  relative  to  the  1995
FirstRock  acquisition and iii) the  consolidation of operations  following that
acquisition.  Non-interest  expenses,  excluding the SAIF  assessment,  goodwill
adjustment,  and  FirstRock  acquisition  charge,  increased as a percentage  of
average  assets to 2.13% for the first nine  months of 1996 as compared to 2.12%
for the same period in 1995. Controllable  non-interest expenses,  which exclude
the  amortization  of  intangible  assets  and the net  cost  of  operations  of
foreclosed properties,  increased to 2.04% of average assets for the nine months
ended  September  30,  1996 as  compared  to 2.02% for the same  period in 1995.
However,  the  efficiency  ratio  improved to 48.90% for the nine  months  ended
September 30, 1996, as compared to 49.34% for the corresponding 1995 period.

Income Taxes:

        Income tax expense  decreased  $11.5  million and $10.4  million for the
third  quarter  and first nine  months,  respectively,  of 1996 as  compared  to
similar periods of 1995. The quarter-to-quarter  decrease is directly related to
the decrease in pre-tax  income in 1996 as a result of the above noted  one-time
items.  The $15.1  million  income tax expense for the first nine months of 1996
represents an effective tax rate of 32.6% as opposed to 36.2% for 1995.  This is
primarily  the result of the  realization  during  early 1996 of a $1.4  million
credit upon the  completion  of a federal  tax audit for the taxable  years 1989
through 1991 and as well as the resolution of other tax matters. Upon completion
of the audit,  the  settlement of certain issues  resulted  either in refunds of
taxes  previously  paid or on  which  deferred  tax  asset  allowances  had been
previously provided.



                                      -30-

<PAGE>



                           FORWARD-LOOKING STATEMENTS

        When used in this Form 10-Q or future filings by FFC with the Securities
and Exchange Commission,  in FFC's press releases or other public or shareholder
communications,  or in oral  statements  made with the approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated,"  "estimate," "project" or similar expressions
are intended to identify "forward- looking statements" within the meaning of the
Private Securities  Litigation Reform Act of 1995. FFC wishes to caution readers
not to place undue reliance on any such forward- looking statements, which speak
only as of the date made,  and to advise  readers  that  various  factors  could
affect FFC's  financial  performance  and could cause FFC's  actual  results for
future periods to differ  materially from those  anticipated or projected.  Such
factors  include,  but are not limited to: i) general market rates,  ii) general
economic  conditions,  iii)  legislative/regulatory  changes,  iv)  monetary and
fiscal policies of the U.S. Treasury and the Federal Reserve,  v) changes in the
quality or composition of FFC's loan and investment  portfolios,  vi) demand for
loan products,  vii) deposit flows, viii) competition,  ix) demand for financial
services in FFC's markets, and x) changes in accounting principles,  policies or
guidelines.

        FFC does not undertake  and  specifically  disclaims  any  obligation to
update any  forward-looking  statements to reflect  occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.



                                      -31-

<PAGE>



                           PART II. OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K.


        a. Exhibits:

                  Exhibit 11 - Computation of Earnings Per Share

                  Exhibit 27 - Financial Data Schedule


        b. Reports on Form 8-K:

                  None





                                      -32-

<PAGE>




                                   SIGNATURES



        Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                       FIRST FINANCIAL CORPORATION


Date: November 8, 1996                  /s/ John C. Seramur
                                       --------------------
                                        John C. Seramur, President
                                        (Chief Executive Officer) and Director





Date: November 8, 1996                  /s/ Thomas H. Neuschaefer
                                       --------------------------
                                        Thomas H. Neuschaefer
                                        Vice President, Treasurer and Chief
                                        Financial Officer





                                      -33-

<PAGE>








                                  EXHIBIT INDEX





      11     -        Computation of Earnings Per Share

      27     -        Financial Data Schedule